Apple

More good news for Apple this week: if consumers are going to buy an expensive computer, they're choosing the Mac maker.

That's according to the June tally of the PC market from The NPD Group. According to NPD, 91 percent of all computers sold at retail for more than $1,000 were Macs. That marked a slight increase from the 88 percent in May. But Apple officially owns that market, and it appears the price cuts across its MacBook Pro lineup introduced in early June helped. On Tuesday, Apple announced that it sold 13 percent more Macs during April, May, and June of this year than the same period a year ago, despite the recession and price-conscious consumers.

Is it sustainable for Apple to sell almost all their computers for more than $1,000?

(Credit: Apple)

Of course, all the computers Apple sells--with the exception of the $999 white plastic MacBook and the Mac Mini desktop--are more than $1,000, so they should own that market. NPD's numbers do not include specialty gaming PCs that enthusiasts usually customize and buy online, which can be well over $1,000. But, as NPD analyst Stephen Baker points out, two-thirds of all computers are sold at retail, so the numbers paint a comfortably accurate picture of what's going on in the PC market.

Windows PCs on average sell for much cheaper now because of the increased focus on price point aided by the Netbook phenomenon. The average selling price for a Windows PC at retail in the U.S. was $515, and for Macs it was $1,400.

That would seem to justify Apple COO Tim Cook's comments on his company's earnings call earlier this week, where he pretty much said Apple would never make a Netbook because the company doesn't think it can make a quality notebook for $400 or $500. ("We're going to focus on what we've always done. The Mac has outgrown market in 18 of the last 19 quarters. I think that says that we do have the right approach.")

Or do they?

Apple got aggressive on pricing at WWDC 2009.

(Credit: James Martin/CNET)

SAN FRANCISCO--The big knock on Apple--whether or not it's always been accurate--is that its products are more expensive than most of its competitors.

But in the keynote speech Monday that opened Apple's Worldwide Developers Conference, it became clear the company is tackling the price question head on.

The best example of this new attitude is the decision to keep the 8GB iPhone 3G, but sell it at $99. That was the most aggressive price move it made Monday. But Apple was price conscious in other ways, too: It upgraded its 13-inch unibody MacBook to specs worthy of its more high-end MacBook Pro line, while also reducing the price. The MacBook Pro 15-inch and MacBook Air also received price cuts. And Apple didn't stop there. The new Mac OS X 10.6, known as Snow Leopard, will cost current Mac OS X 10.5 owners just $29 to upgrade when it becomes available in October.

The price cuts on the MacBook lineup and the iPhone 3G are clearly intended to bring more "switchers" over to the Mac and iPhone platforms. And it shows that Apple is acutely aware of the financial problems facing potential new customers. But will it work?

There are two things that lowering the price of the iPhone to $99 does: It broadens the potential base of people who can now afford the iPhone. It also kneecaps Palm. The $199 8GB Palm Pre has been touted as a potential "iPhone killer," or at least a very nice alternative to Apple's device. But the Pre is now $100 more than the comparable device from Apple. That could make the decision very easy for people who are on the fence.

But this isn't just about Palm. It's about all the other phones that are currently sub-$100 right now, too. As of the beginning of the year, Apple owns just under 11 percent of the smartphone market, and that could increase exponentially now. In order to figure out just how much a price cut from $199 to $99 on the 8GB version will affect consumers, the best example is what happened when Apple cut the iPhone from $399 to $199 last year. That was also a 50 percent price reduction.

Apple watcher and Piper Jaffray analyst Gene Munster notes that the price cut last year tripled the sales of the device, from 4.7 million iPhones sold in the three quarters before the price cut, to 15 million iPhones sold after the release of the $199 iPhone 3G. There are other factors of course: greater visibility for the iPhone after a year of being on the market, people who had been holding out for a 3G version of the phone, and more availability in international markets. But Munster says demand in the U.S. alone increased 100 percent with that price cut.

Whether Apple can repeat this is going to be determined by a number of factors. Of course, the economic environment isn't the same as it was a year ago, plus far more people have iPhones already, and there are more smartphones on the market now.

In any case, the decision on price shows Apple is being aggressive, and it makes a statement about the kinds of customers it is courting.

The same is true of its pricing approach to the Snow Leopard upgrade. While there are plenty of flashy new tweaks to the operating system, they're just that: tweaks. The updated OS is not a monumental change from Leopard, which is why Apple likely went with the easier-to-stomach and surprisingly low upgrade fee for current Leopard users of $29. (When Leopard was introduced, it cost $129).

Jab at Redmond
The move also clearly puts pressure on Microsoft vis a vis Windows 7, which will start shipping in October. Microsoft executive Bill Veghte told CNET News last week that Microsoft is considering whether to offer a lower-cost Windows 7 upgrade for Vista users--and hinted as much in a speech earlier on Monday. A leaked Best Buy memo says the retailer plans to pre-sell Windows 7 upgrades for $50. However, it is unclear if that is a promotional price; Microsoft has yet to publicly detail its plans.

That wasn't the only jab at Redmond during the presentation. Some were more subtle than others (Like Bertrand Serlet's remark about "Windows 7 is just another version of Vista.") Microsoft has worked hard to make the choice of buying a Mac or a PC about the price--just witness its series of I'm a PC ads that send moms, kids, aspiring actresses, and college students searching for inexpensive laptops at retail stores. Apple, however, has never really engaged on the issue of pricing--the company's messaging on Macs has always been to position it as "the best computer" period. But the aggressive pricing on Mac laptops revealed at WWDC today shows that Microsoft (and Hewlett-Packard, and Dell, and Sony, etc.) has Cupertino's attention.

Prices were cut across the board, from the newly introduced 13-inch MacBook Pro to the MacBook Air. The 13-inch now starts at $1,199 and 15-inch at $1,699, though both received upgrades to battery life, the screen technology, and a new SD card slot. The MacBook Air price was the biggest change: It now costs $1,499 for the low-end Air and $1,799, down from $2,499, for the high-end version packed with a 128GB solid-state drive.

Apple is obviously hoping to rejuvenate its Mac sales. While the overall market for computers has dropped steeply, Apple's sales have fallen but not as drastically. Its market share stands at about 7.5 percent, but sales for February and April this year were both trending at about a 4 percent to 16 percent declines in unit growth from the same time a year prior. Price cuts across the board could definitely get people to shop again.

Perhaps even Laptop Huntresses "Lauren and Sue" will want to reconsider that 15-inch MacBook.

Apple made a few jabs at Microsoft during Tuesday's notebook event, but if I were a Windows executive today, I'd probably be breathing a sigh of relief.

Although Apple did revamp its entire Mac product line on Tuesday, it didn't hit the $800 price point that the rumor mills had projected.

The new laptops seem nice enough, and they might be enough to keep Apple on a roll, but Apple didn't take the Mac into any new segments of the market.

Clearly fearing that Apple was on the brink of such a price move, Microsoft launched a pre-emptive attack on Monday, with Vice President Brad Brooks going into great detail about an "Apple tax" ahead of what even he thought would be the introduction of significantly cheaper Macs.

It seemed at the outset of today's event as if that might be where Apple was headed. In his introductory comments, Apple executive Tim Cook rattled off several reasons Macs are doing well. One of those things on the list, he said, is something Apple has nothing to do with--Windows Vista.

But in the end, Apple's attack was limited to those words and the company's usual arsenal of elegant but pricey machines. Apple has made some significant advances, to be sure, but it looks as if this year's Mac-vs.-PC battle will remain at the high end of the market rather than dropping down to the mainstream.

Nonetheless, it is interesting to watch the war of words heat up. For years now, Vista has been a popular punching bag for Apple, and Tuesday's event was no exception.

Microsoft, though, is only belatedly trying to defend itself, with the most visible effort being its "I'm a PC" advertisements.

The reasons for Microsoft's moves are clear. First of all, it had let itself be completely defined by a competitor. Secondly, Apple's market share is significant and growing. Although its share of the global market is only a few percentage points, its share of the dollars spent on PCs, particularly in the United States, is far more significant.

For complete coverage of the Apple notebook news, see "Apple polishes up its MacBook line."

SUNNYVALE, Calif.--Apparently sometimes, you just can't say no, even when you know it's going to hurt.

That seems to be where AMD finds itself, as it tries to reconcile a draining price war against the high demand for its chips. Intel has been squeezing AMD's margins for over a year through processor price cuts, but AMD has still managed to expand its foothold inside customers like Dell and gain new customers like Toshiba.

The problem is that much of that growth is coming at the low end of the market, where less profits can be had. Intel's decision to build quad-core chips more quickly than AMD has resulted in an "unfair fight" in which AMD has to compete against Intel's quad-core chips with dual-core chips, said Henri Richard, executive vice president and AMD's chief sales and marketing officer. It's the exact opposite of AMD's experience in 2005 in which it had dual-core server chips, and Intel didn't.

Right now, that means AMD can't play in the more expensive bands of the PC and server market since it doesn't have the quad-core chips. But does it mean that it has to dig itself more of a profit hole by pursuing market share on the low end of the market?

New customers like Dell and Toshiba require that AMD get that relationship off on the right foot by meeting their needs, Richard said. "We have customers, they are asking me to supply them with the products they need, and I can't just say no," he said in comments to reporters after AMD's Technology Analyst Day.

With all due respect, Henri, why not? Cutting prices to obtain market share has been an unfortunate part of AMD's history for years, but when CEO Hector Ruiz took over the reins from founder Jerry Sanders it seemed that the company had changed its tune.

Market share means a lot, but if you can't make any money selling products at that price, why take that deal? Dell had to learn this lesson in the PC market, ceding the lower unprofitable end of the market to other companies with leaner operating models.

The problem, of course, is that in this market there are only two suppliers. (Sorry, Via.) If Intel was unwilling to meet Dell and Toshiba's pricing demands, and those two PC makers turned to AMD, it would have been very hard for AMD to say no and disappoint the last two major PC companies on its wish list. Demand for AMD's chips soared in the second quarter compared with the first, but average prices did not improve.

Still, investors demand profits. "We're not chasing share for share's sake," Richard said. The company believes it can erase its losses and improve its average selling prices with the launch of its quad-core Barcelona chip in August, and new chips for desktops and notebooks over the next several months.

But the situation underscores how some parts of the PC market still see AMD in many respects: as the low-cost provider. AMD is working hard to change that perception, but a reputation can take awhile to shake.